- Price weighted. A stock that trades at $50/share will have twice the weighting as a stock that trades at $25/share, regardless of the sizes of the companies
- There are only 30 companies in the index
Because of the above two reasons there is almost no money indexed to the Dow, but it's a widely-watched average so its composition should merit some thought. Since there are only 30 members, each one is more important, no?
General Motors is bankrupt so it's got to come out. That probably means that Ford goes in, which makes some sense. What also makes sense would be adding Apple or Google instead. There is less manufacturing, more technology in the U.S. economy these days. That being said, the chatter this weekend is that their (Apple and Google) share prices are so high that adding either would cause disruption.
There has been so much disruption in the economy that one of the 30 most significant companies in the land went busto. In order to minimize disruption in their precious index, the folks at GM are looking for a 75 cent stock to replace GM.
edit 6/1 @ 9:30 - Looks like they added CSCO. Could have been worse.